26th June 2017
A change in the Ogden Discount Rate – what impact will it have?
For those in the insurance industry the Ogden Discount Rate will be familiar, but for business owners it is something you need to be aware of, particularly as significant changes were implemented in March 2017. Luckily, our friends over at Noyce Insurance have given us all of the ‘need to know’ information and we’ve compiled it to make things as simple as possible for you…
What is the Ogden Discount Rate?
The Ogden Discount Rate is set by the Lord Chancellor and is used to calculate how much insurance companies should pay out to customers in cases of life-changing injury. The rate was previously set at +2.5%, however, as of 20th March 2017 the rate has been reduced to -0.75%. As you may imagine, this is one of the most significant changes faced by the insurance industry in some time and will undoubtedly have a substantial impact on future injury claim settlement figures.
The main aim of the discount rate is to make sure anyone who is severely injured has the necessary financial security to cover their care and loss of earnings. The discount rate is used to calculate the amount of compensation they receive, and to reflect the interest they can expect to earn when that money is invested.
What impact will the change have?
The reduction in rate means that those suffering from serious injuries will receive significantly higher compensation payments than before. As a knock-on effect, this will impact claims costs for all lines of business which see claims for bodily injury including:
This has resulted in insurers having no choice but to immediately consider their pricing requirements in this new environment. This will be an unwelcome change for insurers, brokers and customers alike but one that cannot be ignored.
The Ogden Tables list multipliers which apply at the various discount rates across a range of -2% to +3% by age and gender of a claimant for both working life based on likely retirement age, and for lifetime losses. For an example on how this works, you can view the latest Noyce Insurance newsletter here.
What are the consequences?
The change in the Ogden discount rate reflects a significant increase in the total settlement of a claim, which may make existing policy limits of indemnity inadequate in the case of a serious claim. This will have a material impact on insurers’ balance sheets and unfortunately means they need to reconsider the future premiums charges for Private and Commercial Motor customers as well as those purchasing Liability policies.
Tom Noyce, Chairman of Noyce Insurance told us “We recommend that policy holders revisit their Employer’s liability and Public liability insurance limits of indemnity in the light of this change. This could help protect them from having to pay out large sums in the result of an injury claim where the limit is breached. The change in the discount rate can potentially leave policyholders exposed to uninsured losses, impacting their company’s cash flow and revenue. There is a risk of being hit with a shock payout should a claim be settled at a higher level than the existing indemnity limit, so it is important that these limits of indemnity are reviewed carefully and are commensurate with the risks that the business faces.”
At Davenham, we are committed to keeping you up to date with changes which may impact your business, whilst keeping a network of quality and trusted connections such as Noyce Insurance from a range of different industries. If you need more information on the Ogden rate and how it may affect your current policies or future claims, you can contact Noyce Insurance at enquire@noyceinsurance.co.uk or speak to a member of their team on 023 8062 2190.
What is the Ogden Discount Rate?
The Ogden Discount Rate is set by the Lord Chancellor and is used to calculate how much insurance companies should pay out to customers in cases of life-changing injury. The rate was previously set at +2.5%, however, as of 20th March 2017 the rate has been reduced to -0.75%. As you may imagine, this is one of the most significant changes faced by the insurance industry in some time and will undoubtedly have a substantial impact on future injury claim settlement figures.
The main aim of the discount rate is to make sure anyone who is severely injured has the necessary financial security to cover their care and loss of earnings. The discount rate is used to calculate the amount of compensation they receive, and to reflect the interest they can expect to earn when that money is invested.
What impact will the change have?
The reduction in rate means that those suffering from serious injuries will receive significantly higher compensation payments than before. As a knock-on effect, this will impact claims costs for all lines of business which see claims for bodily injury including:
- Private and Commercial Motor Trade
- Casualty, Employers Liability, Public Liability, Contractors Liability and other Liability.
This has resulted in insurers having no choice but to immediately consider their pricing requirements in this new environment. This will be an unwelcome change for insurers, brokers and customers alike but one that cannot be ignored.
The Ogden Tables list multipliers which apply at the various discount rates across a range of -2% to +3% by age and gender of a claimant for both working life based on likely retirement age, and for lifetime losses. For an example on how this works, you can view the latest Noyce Insurance newsletter here.
What are the consequences?
The change in the Ogden discount rate reflects a significant increase in the total settlement of a claim, which may make existing policy limits of indemnity inadequate in the case of a serious claim. This will have a material impact on insurers’ balance sheets and unfortunately means they need to reconsider the future premiums charges for Private and Commercial Motor customers as well as those purchasing Liability policies.
Tom Noyce, Chairman of Noyce Insurance told us “We recommend that policy holders revisit their Employer’s liability and Public liability insurance limits of indemnity in the light of this change. This could help protect them from having to pay out large sums in the result of an injury claim where the limit is breached. The change in the discount rate can potentially leave policyholders exposed to uninsured losses, impacting their company’s cash flow and revenue. There is a risk of being hit with a shock payout should a claim be settled at a higher level than the existing indemnity limit, so it is important that these limits of indemnity are reviewed carefully and are commensurate with the risks that the business faces.”
At Davenham, we are committed to keeping you up to date with changes which may impact your business, whilst keeping a network of quality and trusted connections such as Noyce Insurance from a range of different industries. If you need more information on the Ogden rate and how it may affect your current policies or future claims, you can contact Noyce Insurance at enquire@noyceinsurance.co.uk or speak to a member of their team on 023 8062 2190.